Bharat Electronics board approves 2:1 bonus issue of equity shares

In its regulatory filing, BEL said, “issue of bonus shares to the shareholders of the company in the ratio 2:1 (two bonus equity shares for every one equity shares held) by capitalising ₹487.32 crore standing to the credit of the free reserves and surplus of the Company.”

Generally, a listed company distributes bonus shares on their equity shares to current shareholders free of charge. Through this, a shareholder can capitalise a part of the company’s retained earnings for conversion of its share premium account, or distribution of treasury shares.

Notably, the company has received approval for increasing authorized share capital by ₹500 crore ahead.

The Administrative Ministry accorded approval for the same on August 1. It needs to be noted that in January this year, BEL intimated its plan to increase authorized share capital from ₹250 crore to ₹750 crore.

Further, the company rescheduled its 68th Annual General Meeting (AGM) to August 30 from earlier August 25.

That said, the proposal for bonus shares and raising of authorised share capital is now subject to shareholders’ approval in the AGM.

Earlier, BEL had announced that the final dividend for the financial year 2021-22, if declared at the 68th AGM, will be payable within 30 days from the date of declaration, to those members whose names appear on the company’s register of members on August 10, 2022.

This also means that BEL will turn ex-dividend on August 8.

Dividends are a form of incentives that shareholders receive for holding shares of a profitable company. Meanwhile, the ex-dividend date for a stock is the business day before the record date of declaring eligible shareholders for the payout. This also means that investors who buy the stock on the ex-dividend date or later will not be eligible for dividends announced for a particular fiscal by the company.

The company’s final dividend is to the tune of ₹1.5 per equity share (150%) having a face value of Re 1 each fully paid-up for FY22.

BEL has presented its financial performance for the quarter ending June 30, 2022 (Q1FY23).

During Q1 of this fiscal, BEL’s standalone net profit stood at ₹431.49 crore against the profit of ₹11.15 crore recorded in the corresponding period of the previous year. Standalone turnover for the period stood at ₹3063.58 crore against ₹1564.34 crore in the same quarter last year. As of June 30, 2022, the company’s order book position is around ₹55,333 crore.

Should you buy the shares?

Abhijit Mitra, Mohit Lohia, and Pritish Urumkar, Research Analysts at ICICI Securities said, “For the last 5 years, there has been an overhang on BEL’s earnings from the expectations of reducing margins. The earnings expectations for BEL have always been constrained by the shift brought in by MoD (in FY18) in converting the prospective nominations-based order from ‘fixed cost’ to ‘cost plus,’ thereby capping margins at 7.5% against 12.5% earlier. With management assessment of ~200bps of cost-benefit in raw materials and stated confidence to maintain margins in the 21-23% range, with high confidence on achieving the upper band, it can be safely stated that margin compression concerns are a thing of the past. This is also likely to improve EPS growth prospects in BEL, in our view.”

Talking about key revenue drivers, the analysts said, ” BEL has realised Rs8bn revenue in Q1FY23 out of ₹26 billion revenue shortfall in FY22 on account of chip shortages. Nearly ₹5 billion will be realised in Q2FY23. To achieve ~9% revenue growth in FY22, management had to bring forward execution of certain projects from FY23. As chip commitment from major OEMs has not yet resolved (completely), leading to delays in execution, management is confident of ~15% revenue growth for FY23. Nearly 40% of EVM/VVPAT order of Rs15bn will be executed in Q4FY23 and 60% of the same will be executed in Q1FY24.”

According to the analysts, the company’s non-defence revenue to see substantial growth in FY24E. They said, “BEL has given the final proposal to UP government and the final approval from MoHA is expected in a couple of months according to company. Management highlighted potential market of Rs120 billion in Train Collision Avoidance System (TCAS) where BEL’s product is under trial. DMRC has completed the ingenious Automatic Train Supervision system (i-ATS) developed by BEL and the ordering is expected soon.”

The FY23 possible order inflow is – 1) Himshakti programme of Rs33 billion, ii) Atulya medium power radar of ~Rs20-30 billion, iii) ~Rs100 billion expected from naval shipyards, and iv) Akash prime for 2 squadrons of ~Rs30-40 billion.

“Around Rs100 billion is the potential market for TCAS order from the Indian Railways, where BEL’s product is presently under trial. We maintain BUY on the stock with a revised target price of Rs316/share (Rs300 earlier),” the analysts added.

On BSE, BEL shares closed at ₹284.10 apiece higher by ₹7.40 or 2.67% on Thursday. The shares have touched an intraday high of ₹287.65 apiece which is just a couple of paisas away from the 52-week high of ₹287.75 apiece. Overall, in the day, the shares have climbed by 3.96%.

The company’s market cap is around ₹69,223.61 crore.

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In its regulatory filing, BEL said, “issue of bonus shares to the shareholders of the company in the ratio 2:1 (two bonus equity shares for every one equity shares held) by capitalising ₹487.32 crore standing to the credit of the free reserves and surplus of the Company.”

Generally, a listed company distributes bonus shares on their equity shares to current shareholders free of charge. Through this, a shareholder can capitalise a part of the company’s retained earnings for conversion of its share premium account, or distribution of treasury shares.

Notably, the company has received approval for increasing authorized share capital by ₹500 crore ahead.

The Administrative Ministry accorded approval for the same on August 1. It needs to be noted that in January this year, BEL intimated its plan to increase authorized share capital from ₹250 crore to ₹750 crore.

Further, the company rescheduled its 68th Annual General Meeting (AGM) to August 30 from earlier August 25.

That said, the proposal for bonus shares and raising of authorised share capital is now subject to shareholders’ approval in the AGM.

Earlier, BEL had announced that the final dividend for the financial year 2021-22, if declared at the 68th AGM, will be payable within 30 days from the date of declaration, to those members whose names appear on the company’s register of members on August 10, 2022.

This also means that BEL will turn ex-dividend on August 8.

Dividends are a form of incentives that shareholders receive for holding shares of a profitable company. Meanwhile, the ex-dividend date for a stock is the business day before the record date of declaring eligible shareholders for the payout. This also means that investors who buy the stock on the ex-dividend date or later will not be eligible for dividends announced for a particular fiscal by the company.

The company’s final dividend is to the tune of ₹1.5 per equity share (150%) having a face value of Re 1 each fully paid-up for FY22.

BEL has presented its financial performance for the quarter ending June 30, 2022 (Q1FY23).

During Q1 of this fiscal, BEL’s standalone net profit stood at ₹431.49 crore against the profit of ₹11.15 crore recorded in the corresponding period of the previous year. Standalone turnover for the period stood at ₹3063.58 crore against ₹1564.34 crore in the same quarter last year. As of June 30, 2022, the company’s order book position is around ₹55,333 crore.

Should you buy the shares?

Abhijit Mitra, Mohit Lohia, and Pritish Urumkar, Research Analysts at ICICI Securities said, “For the last 5 years, there has been an overhang on BEL’s earnings from the expectations of reducing margins. The earnings expectations for BEL have always been constrained by the shift brought in by MoD (in FY18) in converting the prospective nominations-based order from ‘fixed cost’ to ‘cost plus,’ thereby capping margins at 7.5% against 12.5% earlier. With management assessment of ~200bps of cost-benefit in raw materials and stated confidence to maintain margins in the 21-23% range, with high confidence on achieving the upper band, it can be safely stated that margin compression concerns are a thing of the past. This is also likely to improve EPS growth prospects in BEL, in our view.”

Talking about key revenue drivers, the analysts said, ” BEL has realised Rs8bn revenue in Q1FY23 out of ₹26 billion revenue shortfall in FY22 on account of chip shortages. Nearly ₹5 billion will be realised in Q2FY23. To achieve ~9% revenue growth in FY22, management had to bring forward execution of certain projects from FY23. As chip commitment from major OEMs has not yet resolved (completely), leading to delays in execution, management is confident of ~15% revenue growth for FY23. Nearly 40% of EVM/VVPAT order of Rs15bn will be executed in Q4FY23 and 60% of the same will be executed in Q1FY24.”

According to the analysts, the company’s non-defence revenue to see substantial growth in FY24E. They said, “BEL has given the final proposal to UP government and the final approval from MoHA is expected in a couple of months according to company. Management highlighted potential market of Rs120 billion in Train Collision Avoidance System (TCAS) where BEL’s product is under trial. DMRC has completed the ingenious Automatic Train Supervision system (i-ATS) developed by BEL and the ordering is expected soon.”

The FY23 possible order inflow is – 1) Himshakti programme of Rs33 billion, ii) Atulya medium power radar of ~Rs20-30 billion, iii) ~Rs100 billion expected from naval shipyards, and iv) Akash prime for 2 squadrons of ~Rs30-40 billion.

“Around Rs100 billion is the potential market for TCAS order from the Indian Railways, where BEL’s product is presently under trial. We maintain BUY on the stock with a revised target price of Rs316/share (Rs300 earlier),” the analysts added.

On BSE, BEL shares closed at ₹284.10 apiece higher by ₹7.40 or 2.67% on Thursday. The shares have touched an intraday high of ₹287.65 apiece which is just a couple of paisas away from the 52-week high of ₹287.75 apiece. Overall, in the day, the shares have climbed by 3.96%.

The company’s market cap is around ₹69,223.61 crore.

First article